40 Israeli Real Estate Firms Sue Tax Authority Over VAT Claims
Translated & summarized from Ice by baba
Around 40 Israeli real estate companies have petitioned the High Court of Justice against the Tax Authority, seeking to deduct VAT on NIS 1.57 billion in development expenses paid to the Israel Land Authority. The companies argue the ILA's receipts for these expenses, which include VAT, should be recognized for input tax deduction. They cite contradictory state positions on the expenses and a recent policy change by the ILA as evidence of their claim, alleging double taxation if not allowed.
The story in 5 lines · by baba
- 40 Israeli real estate firms are suing the Tax Authority for NIS 1.57 billion in disputed VAT.
- Companies seek to deduct input tax on development expenses paid to the Israel Land Authority.
- The High Court of Justice is now considering the companies' petition.
- Developers claim the state has contradictory tax policies regarding these expenses.
- A recent change in tender conditions by the ILA supports the firms' claims.
Approximately 40 development and contracting companies, including major players in Israel's construction sector, have filed a petition with the High Court of Justice (Bagatz) against the Israel Tax Authority. The firms are demanding that receipts issued by the Israel Land Authority (ILA) for development expenses be recognized as "other documentation" under VAT Law, allowing them to deduct input tax. The total development expenses in question amount to approximately NIS 1.57 billion, with the embedded VAT totaling tens of millions of shekels.
The core of the dispute concerns development expenses, which are payments developers must make to the ILA for infrastructure, public facilities, and neighborhood upgrades as a condition for winning land tenders. While the ILA issued valid tax invoices for the land component, it only issued receipts for the development expense component, which includes VAT, under instructions from the Tax Authority. This prevented the companies from deducting the input tax embedded in these payments.
The petition, filed by attorneys Yaron Kostelitz and Aviad Shaulzon, follows civil lawsuits initiated by the companies in January 2026. In September 2026, the District Court ruled that the High Court had jurisdiction over the claims, noting the difficulty in accepting a situation where a significant administrative decision could not be judicially reviewed.
The petition outlines four main arguments. Firstly, the companies accuse the state of contradictory positions, treating development expenses as part of the property's sale value for land appreciation tax while disregarding them for VAT purposes. Secondly, they argue that a policy change by the ILA, now issuing tax invoices for significant portions of development expenses in new tenders without a change in law, implies that the right to deduction existed previously. Thirdly, the contractors contend that tender conditions should not override statutory rights to tax deductions. Finally, they claim the Tax Authority's refusal creates double taxation, as the VAT on development work becomes a final cost for developers and is then collected again when apartments are sold.
